Perspecta Announces Financial Results for First Quarter of Fiscal Year 2019

CHANTILLY, Va., Aug. 14, 2018 /PRNewswire/ -- Perspecta Inc. (NYSE:PRSP), a leading U.S. government services provider, today announced financial results for the first quarter of fiscal year 2019, which ended June 30, 2018. On May 31, 2018, Perspecta became an independent company through consummation of the spin-off by DXC Technology (DXC) of its U.S. Public Sector Business (USPS) and completed its mergers with Vencore Holding Corp. (Vencore) and KGS Holding Corp. (KeyPoint). On June 1, 2018, Perspecta began trading on the New York Stock Exchange under the ticker symbol "PRSP."

"We are excited to begin operating and reporting as Perspecta, a leader in combining enterprise information technology and mission services to serve the needs of the U.S. public sector," said Mac Curtis, Perspecta's president and CEO. "We are committed to delivering robust and sustainable growth as we execute across the entire services pyramid and differentiate through innovation and intellectual property. The first quarter's strong performance across the board positions us well to meet the promises we laid out at our Investor Day and build a solid foundation for the future."

Summary Operating Results (Unaudited)


                                                       Three Months Ended

    (In millions, except
     per share data)                          June 30, 2018             June 30, 2017
    --------------------                      -------------             -------------

    Revenue                                                      $793                                     $676

    Income before taxes                                  41                                   52

    Net income                                           29                                   32

    Diluted earnings per
     share (EPS)                                       0.17                                 0.22


    Non-GAAP Measures*:

    Pro Forma Revenue                                          $1,038                                   $1,019

    Pro Forma Adjusted
     EBITDA                                             195                                  142

    Pro Forma Adjusted
     Diluted EPS                                       0.54                                 0.36


    * Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the
     information provided in accordance with GAAP. Reconciliations for non-GAAP financial items to the
     most directly comparable GAAP financial items are provided under Reconciliation of Non-GAAP
     Financial Measures at the end of this news release.
    ---------------------------------------------------------------------------------------------------

Results provided in accordance with U.S. generally accepted accounting principles (GAAP) reflect the operations of USPS for the period from April 1, 2018 to June 30, 2018 and Vencore and KeyPoint for the period from June 1, 2018 to June 30, 2018. To aid investors and analysts with year-over-year comparability for the combined businesses of USPS, Vencore and KeyPoint, Perspecta is including certain pro forma financial information that combines the stand-alone USPS, Vencore and KeyPoint financial information as if the acquisition had taken place on April 1, 2017. Adjusted results exclude costs directly associated with the spin-off and mergers and the ongoing integration process. The tables in Reconciliation of Non-GAAP Financial Measures at the end of this press release provide all appropriate reconciliations from pro forma and adjusted results to GAAP.

Revenue for the quarter was $793 million, up 17 percent compared to the first quarter of fiscal year 2018, primarily as a result of the mergers. Pro forma revenue for the quarter was $1.04 billion, up 2 percent from the first quarter of fiscal year 2018. Major drivers of the year-over-year pro forma increase include continued growth in intelligence community support and background investigations, which more than offset the completion of a large engineering support contract for the Kennedy Space Center.

Income before taxes for the first quarter of fiscal year 2019 was $41 million (5.2 percent operating margin). Net income was $29 million, or $0.17 per share, which was down 9 percent from the first quarter of fiscal year 2018.

Pro forma adjusted EBITDA was $195 million for the first quarter, up 37 percent year-over-year, as pro forma adjusted EBITDA margin improved from 13.9 percent to 18.8 percent. Both income before taxes and pro forma adjusted EBITDA benefited from a $24 million gain on the divestiture of a contract to avoid a potential organizational conflict of interest arising from the Vencore merger. Excluding the divestiture gain, pro forma adjusted EBITDA margin was 16.5 percent. Pro forma adjusted diluted earnings per share for the quarter was $0.54, up 50 percent year-over-year, consistent with the increasing revenue and profitability. Excluding the divestiture gain, pro forma adjusted diluted EPS was $0.44, up 22 percent year-over-year.

Cash Management and Capital Deployment

The cash flow statement reflects the foundation of Perspecta's capital structure. On the date of the spin-off and mergers, Perspecta received $2.5 billion of net proceeds from new debt financing and used it to pay off Vencore's and KeyPoint's existing debt and hedges, distribute approximately $984 million in cash to DXC, and distribute the cash portion of merger consideration to Vencore's and KeyPoint's stockholders.

Perspecta generated $160 million of net cash provided by operating activities in the first quarter of fiscal year 2019. Pro forma adjusted free cash flow was $145 million, or about 161 percent of pro forma adjusted net income. The Company deployed $50 million to pay down debt during the first quarter of fiscal year 2019.

At quarter end, the Company had $201 million in cash and cash equivalents, $600 million of undrawn capacity in its revolving credit facility, and $2.8 billion in total debt, including $303 million in capital lease obligations. Management believes Perspecta's steady cash flows and $801 million of total liquidity provides substantial financial flexibility to manage the business.

On June 1, 2018, Perspecta's Board of Directors declared a regular quarterly cash dividend of $0.05 per share on Perspecta's common stock. The first quarterly dividend was paid on July 17, 2018 to Perspecta stockholders of record at the close of business on June 11, 2018. Also on June 1, 2018, the Board authorized up to $400 million for future repurchases of outstanding shares of its common stock with no time limit. The dividend and stock repurchase programs are part of the Perspecta's overall balanced strategy for capital allocation.

On August 14, 2018, the Board of Directors declared that Perspecta would pay a cash dividend of $0.05 per share on October 16, 2018 to Perspecta stockholders of record at the close of business on September 5, 2018.

Contract Awards

Pro forma contract awards (bookings) totaled $1.3 billion in the first quarter of fiscal year 2019, representing a pro forma book-to-bill ratio of 1.3x. New business awards constituted about one-quarter of the total awards in the first quarter.

Included in the quarterly bookings were several particularly important single-award prime contracts:

    --  County of San Diego IT Outsourcing. Perspecta recognized the $607
        million, five-year option for its contract with the County of San Diego
        to provide IT and telecommunications services, including data center
        hosting, desktop support, networks, applications, and cross-functional
        services. The contract, one of the largest of its kind, offers many
        leading-edge approaches, such as migrating to cloud-based platforms and
        services, increasing mobility, enhancing user experience, and co-funding
        an innovation incubator.
    --  Center for Medicare & Medicaid Services (CMS) Virtual Data Center Claims
        Processing. Under a five-year, $149 million task order from CMS,
        Perspecta will provide enterprise mainframe application hosting services
        for three Medicare Fee-For-Service (FFS) applications. As part of its
        broader support to CMS, Perspecta also provides operations and
        maintenance support for the Medicare FFS Part A and Part B claims
        processing systems that adjudicate more than one billion claims annually
        as well as the Integrated Data Repository that is the centerpiece of the
        CMS Enterprise Data Warehouse Strategy.
    --  Army Materiel Systems Analysis Activity (AMSAA) Sample Data Collection
        and Analysis (SDC&A). AMSAA awarded Vencore, a Perspecta company, a
        five-year, $96 million SDC&A follow-on contract to provide data
        collection and review services on selected models of U.S. Army aviation
        and ground combat systems, tactical wheeled vehicles and ground support
        equipment. Additionally, Vencore, a Perspecta company, will assist AMSAA
        in performing health usage monitoring and operational sustainment
        analysis support functions.

In addition, Perspecta won several large multiple-award, indefinite delivery, indefinite quantity contracts that are not included in bookings but support future growth, including:

    --  United States Postal Service Enterprise Information Technology Program
        (EITP). The Postal Service awarded Perspecta a prime position on its
        EITP Technical Support Services contract to enable the agency to provide
        reliable and efficient services that are critical to U.S. businesses and
        the day-to-day lives of citizens. On the seven-year contract, which has
        a ceiling value of $467 million, Perspecta will provide applications
        development and modernization services, DevOps support, information and
        data engineering, systems integration support, testing support and
        enterprise solutions.

Perspecta's backlog of signed business orders at the end of first quarter of fiscal year 2019 was $9.0 billion, of which $2.0 billion was funded.

Forward Guidance

Perspecta is reaffirming its previously announced guidance ranges for pro forma revenue, pro forma adjusted EBITDA margin, pro forma adjusted diluted EPS, and pro forma adjusted free cash flow conversion (as a percentage of pro forma adjusted net income) as specified in the table below. Perspecta elects to provide guidance for certain non-GAAP metrics because it cannot make reasonable estimates of key elements of certain GAAP metrics.


                Measure                  Fiscal Year 2019
                -------                  ----------------

     Pro Forma Revenue (millions)           $4,150 - $4,250
      ---------------------------

       Pro Forma Adjusted EBITDA
                 Margin                           16% - 17%
       -------------------------                   --------

    Pro Forma Adjusted Diluted EPS            $1.80 - $1.95
    ------------------------------            -------------

     Pro Forma Adjusted Free Cash
            Flow Conversion                            90%+
     ----------------------------                       ---

John Kavanaugh, Perspecta CFO, commented, "The team's performance out of the gate has been outstanding, and we are on course and speed to deliver on our full year guidance. Our cash performance enabled us to pay off our revolver and enhance our financial flexibility. With a robust volume of submitted proposals and strong market positioning, we look forward to accelerating new business wins while maintaining our industry-leading profitability and strong cash generation."

Conference Call

Perspecta executive management will hold a conference call on August 14, 2018, at 5 p.m. Eastern to discuss the financial results and outlook and answer questions. Analysts and investors may participate on the conference call by dialing 888-317-6016 (domestic), 855-669-9657 (Canada), or 412-317-6016 (international). The conference call will be webcast simultaneously through a link on the Investor Relations section of the Perspecta website. A replay of the conference call will be available on the Investor Relations section of the Perspecta website approximately two hours after the conclusion of the call.

About Perspecta Inc.

At Perspecta (NYSE: PRSP), we question, we seek and we solve. Perspecta brings a diverse set of capabilities to our U.S. government customers in defense, intelligence, civilian, health care and state and local markets. Our 260+ issued, licensed and pending patents are more than just pieces of paper, they tell the story of our innovation. With offerings in mission services, digital transformation and enterprise operations, our team of 14,000 engineers, analysts, investigators and architects work tirelessly to not only execute the mission, but build and support the backbone that enables it. Perspecta was formed to take on big challenges. We are an engine for growth and success and we enable our customers to build a better nation. For more information about Perspecta, visit perspecta.com.

Forward-looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking statements." These statements represent current intentions, expectations, beliefs or projections, and no assurance can be given that the results described in such statements will be achieved. These statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, including, but not limited to, risks relating to (i) our relationships with the U.S. federal government, or any state or local governments or changes in such governments' spending and mission priorities that shift expenditures away from agencies or programs that we support; (ii) delay in completion of the U.S. federal government's budget process; (iii) failure by us or our employees to obtain and maintain necessary security clearances or certifications; (iv) our ability to compete effectively in the competitive bidding process; (v) delays, contract terminations or cancellations of our major contract awards; (vi) our ability to accurately estimate or otherwise recover expenses, time and resources for our contracts; (vii) problems or delays in the development, delivery, transition or enhancement of products and services; (viii) failure of third parties to deliver on commitments under contracts with us; (ix) failure to be awarded task orders under our indefinite delivery, indefinite quantity contracts; and (x) changes in government procurement, contract or other practices or the adoption by the government of new laws, rules and regulations adverse to us; as well as the matters described in the "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" sections of Perspecta's Annual Report on Form 10-K for the year ended March 31, 2018, as may be updated or supplemented in our Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission, which discuss these and other factors that could adversely affect our results. Readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events except as required by law.


    Condensed Consolidated Statements of Operations

    (preliminary and unaudited)


                                                             Three Months Ended

    (In millions,
     except per-
     share
     amounts)                                       June 30, 2018            June 30, 2017
    -------------                                   -------------            -------------

    Revenue                                                           $793                          $676
                                                                      ----                          ----


    Costs of
     services
     (excludes
     depreciation
     and
     amortization
     and
     restructuring
     costs)                                                   597                          525

    Selling,
     general, and
     administrative
     (excludes
     depreciation
     and
     amortization
     and
     restructuring
     costs)                                                    61                           46

    Depreciation
     and
     amortization                                              64                           37

    Restructuring
     costs                                                      -                           3

    Separation
     and
     integration
     costs                                                     44                           11

    Interest
     expense                                                   10                            2

    Other
     (income)
     expense, net                                            (24)                           -
                                                              ---                          ---

    Total costs
     and expenses                                             752                          624
                                                              ---                          ---


    Income before
     taxes                                                     41                           52

    Income tax
     expense                                                   12                           20

    Net income                                                         $29                           $32
                                                                       ===                           ===


    Earnings per
     common
     share(1):

      Basic                                                          $0.18                         $0.22

      Diluted                                                        $0.17                         $0.22


    Cash dividend
     per common
     share                                                           $0.05                     N/A


    (1) Earnings per share
     information for the three
     months ended June 30, 2017, is
     computed using the 142.43
     million shares of Perspecta
     common stock resulting from the
     distribution by DXC, as
     Perspecta did not operate as a
     stand-alone entity during the
     period and therefore, no
     Perspecta common stock, options
     or other equity awards were
     outstanding and no dividends
     were declared or paid by
     Perspecta.


    Selected Consolidated Balance Sheet Data

    (preliminary and unaudited)


                                                              As of

    (In millions)                            June 30, 2018          March 31, 2018
    ------------                             -------------          --------------

    Assets

    Cash and cash
     equivalents                                             $201                        $      -

    Receivables, net
     of allowance for
     doubtful
     accounts of $0
     and $0                                            508                           354

    Other receivables                                  135                             -

    Prepaid expenses
     and other
     current assets                                    116                            74

    Deferred contract
     costs                                              71                            21
                                                       ---                           ---

    Total current
     assets                                          1,031                           449

    Intangible
     assets, net of
     accumulated
     amortization of
     $137 and $98                                    1,490                           897

    Goodwill                                         3,272                         2,022

    Property and
     equipment, net
     of accumulated
     depreciation of
     $134 and $66                                      342                           290

    Other assets                                       195                            21
                                                       ---                           ---

    Total assets                                           $6,330                          $3,679
                                                           ======                          ======


    Liabilities

    Current
     maturities of
     long-term debt                                           $81                        $      -

    Current capital
     lease liability                                   163                           160

    Accounts payable                                   206                           195

    Accrued payroll
     and related
     costs                                             102                            17

    Accrued expenses
     and other
     current
     liabilities                                       519                           180

    Deferred revenue
     and advance
     contract
     payments                                           75                            53

    Income taxes
     payable                                            30                             -
                                                       ---                           ---

    Total current
     liabilities                                     1,176                           605

    Non-current
     portion of long-
     term debt                                       2,463                             -

    Non-current
     capital lease
     liability                                         140                           144

    Non-current
     deferred revenue
     and advance
     contract
     payments                                           10                             7

    Non-current
     deferred tax
     liabilities                                       133                           176

    Other long-term
     liabilities                                       206                            18
                                                       ---

    Total liabilities                                4,128                           950

    Commitments and
     contingencies

    Total
     stockholders'
     equity                                          2,202                         2,729

    Total liabilities
     and equity                                            $6,330                          $3,679
                                                           ======                          ======


    Condensed Consolidated Statements of Cash Flows

    (preliminary and unaudited)


                                                             Three Months Ended

    (In millions)                                   June 30, 2018            June 30, 2017
    ------------                                    -------------            -------------

    Cash flows from
     operating
     activities:

    Net income                                                         $29                           $32

    Adjustments to
     reconcile net
     income to net
     cash provided
     by operating
     activities:

    Depreciation and
     amortization                                              64                             37

    Share-based
     compensation                                               2                              1

    Deferred income
     tax expense                                                -                             -

    Gain on sale of
     assets                                                  (24)                             -

    Other non-cash
     charges, net                                            (14)                             3

    Changes in
     assets and
     liabilities,
     net of effects
     of acquisitions
     and
     dispositions:

    Change in
     receivables                                               24                           (44)

    Change in
     prepaid
     expenses and
     other current
     assets                                                   (5)                           (6)

    Change in
     accounts
     payable and
     accrued
     liabilities                                               72                             97

    Change in
     contract
     liabilities,
     deferred
     revenue and
     advanced
     contract
     payments                                                  13                              4

    Other operating
     activities, net                                          (1)                             -
                                                                                            ---

    Net cash
     provided by
     operating
     activities                                               160                            124
                                                              ---                            ---

    Cash flows from
     investing
     activities:

    Payments for
     acquisitions,
     net of cash
     acquired                                               (312)                             -

    Extinguishment
     of Vencore HC
     and KGS HC debt
     and related
     costs                                                  (994)                             -

    Proceeds from
     sale of assets                                            24                              -

    Purchases of
     property,
     equipment and
     software                                                 (6)                             -

    Payments for
     outsourcing
     contract costs                                           (2)                           (3)

    Net cash used in
     investing
     activities                                           (1,290)                           (3)
                                                           ------                            ---

    Cash flows from
     financing
     activities:

    Proceeds from
     debt issuance                                          2,500                              -

    Payment of debt
     issuance costs                                          (43)                             -

    Proceeds from
     revolving
     credit facility                                           50                              -

    Payments on
     revolving
     credit facility                                         (50)                             -

    Payments on
     lease liability                                         (41)                          (39)

    Dividend to DXC                                         (984)                             -

    Net transfers to
     Parent                                                  (88)                          (82)

    Net cash
     provided by
     (used in)
     financing
     activities                                             1,344                          (121)
                                                            -----                           ----

    Net increase in
     cash and cash
     equivalents,
     including
     restricted                                               214                              -

    Cash and cash
     equivalents,
     including
     restricted, at
     beginning of
     year                                                       -                             -

    Cash and cash
     equivalents,
     including
     restricted, at
     end of period                                            214                              -

    Less restricted
     cash and cash
     equivalents
     included in
     prepaid
     expenses and
     other current
     assets                                                    13                              -

    Cash and cash
     equivalents at
     end of period                                                    $201                         $   -
                                                                      ====                       === ===

Segment Operating Results (Unaudited)

Perspecta delivers IT, mission, and operations-related services across the U.S. federal government through two reportable segments--Defense and Intelligence, which provides services to the Department of Defense (DoD), intelligence community, branches of the U.S. Armed Forces, and other DoD agencies; and Civilian and Health Care, which provides services to the Departments of Homeland Security, Justice, and Health and Human Services, as well as other federal civilian and state and local government agencies. The following tables summarize revenue and segment operating income by reportable segment:


                                                                                                PERSPECTA INC.

                                                                                     PRO FORMA SEGMENT METRICS (Unaudited)

                                                                                   FOR THE THREE MONTHS ENDED JUNE 30, 2018


    (In millions)                                              Perspecta for the three                Historical Vencore for      Pro Forma Combined
                                                                months ended June 30,                  the two months ended      for the three months
                                                                                  2018                    May 31, 2018 (a)        ended June 30, 2018
    ---                                                                        ----                     ---------------        -------------------

    Revenue

                    Defense and Intelligence                                                   $437                                                     $231         $668

                    Civilian and Health Care                                       356                                       14                              370

                                                                                             $793                                                     $245       $1,038
                                                                                             ====                                                     ====       ======


    Segment operating income

                    Defense and Intelligence                                                    $25                                                      $57          $82

                    Civilian and Health Care                                        47                                       23                               70

                                                                                              $72                                                      $80         $152
                                                                                              ===                                                      ===         ====


    Notes:

    (a)              In this and all subsequent tables, financial data for "Vencore" includes the combined
                     results of Vencore Holding Corp. and KGS Holding Corp.


                                                                       PERSPECTA INC.

                                                            PRO FORMA SEGMENT METRICS (Unaudited)

                                                          FOR THE THREE MONTHS ENDED JUNE 30, 2017


    (In millions)                       Historical USPS for                 Historical Vencore
                                                the                                 for                 Pro Forma Combined
                                        three months ended                   the three months          for the three months
                                        June 30, 2017                   ended June 30, 2017         ended June 30, 2017
    ---                                 -------------                   -------------------         -------------------

    Revenue

               Defense and Intelligence                             $320                                                      $283         $603

               Civilian and Health Care                 356                                        60                              416

                                                                  $676                                                      $343       $1,019
                                                                  ====                                                      ====       ======


    Segment operating income

               Defense and Intelligence                              $23                                                       $37          $60

               Civilian and Health Care                  46                                        16                               62

                                                                   $69                                                       $53         $122
                                                                   ===                                                       ===         ====

For the three months ended June 30, 2018, pro forma Defense and Intelligence segment revenues increased by $65 million, or 11 percent compared to the same period of the prior year. Major drivers of the year-over-year increase include continued growth in intelligence community support and background investigations. Pro forma Civilian and Health Care segment revenues decreased by $46 million, or 11 percent year-over-year. The primary driver of the decline was the completion of a large engineering support contract for the Kennedy Space Center.

Defense and Intelligence segment operating margin for the quarter improved to 12.3 percent from 10.0 percent in the first quarter of fiscal year 2019. Civilian and Health Care segment operating margin improved to 18.9 percent from 14.9 percent in the first quarter of fiscal year 2019. Profitability increases across both segments derived primarily from increased operational efficiencies implemented throughout fiscal year 2018 as well as the cost synergy actions taken in the first quarter of fiscal year 2019.

Reconciliation of Non-GAAP Financial Measures

To aid investors and analysts with year-over-year comparability for the combined businesses of USPS and Vencore and KeyPoint, Perspecta is including certain pro forma financial information that combines the stand-alone USPS and Vencore and KeyPoint financial information as if the acquisition had taken place on April 1, 2017. Pro forma adjusted results include a full period of Vencore and KeyPoint results; assess the impact of interest, depreciation and amortization, recurring elements of pension income, and other costs as if the spin-off and mergers had occurred at the beginning of the period; and exclude costs directly associated with the spin-off and mergers and the ongoing integration process.

The following tables reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Perspecta management believes that these non-GAAP financial measures provide useful additional information to investors regarding Perspecta's results of operations as they provide another measure of the Company's profitability and ability to service its debt and are considered important to financial analysts covering Perspecta's industry.

These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for income from operations, net income or any other measure of financial performance reported in accordance with GAAP. Perspecta's non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing Perspecta's performance, it is important to evaluate each adjustment in the reconciliation and use adjusted measures in addition to, and not as an alternative to, GAAP measures.

Pro Forma Revenue (Unaudited)


                                           PERSPECTA INC.

                                   PRO FORMA REVENUE (Unaudited)


                                                                     Three Months Ended

    (In millions)                                             June 30, 2018              June 30,
                                                                                           2017
    -------------                                             -------------             ---------

    Revenue (a)                                                                  $793                              $676

    Historical Vencore revenue (b)                                      245                              343

    Pro forma revenue                                                          $1,038                        1,019
                                                                               ======                        =====


    Notes:

    (a)                                                        For the three months ended June 30, 2017,
                                                               GAAP results reflect the operations of
                                                               USPS.

    (b)                                                        Revenue prior to the May 31, 2018 mergers
                                                               is from the most closely corresponding
                                                               reporting period, which is April 1, 2018
                                                               to May 31, 2018 and April 1, 2017 to June
                                                               30, 2017, for the three months ended June
                                                               30, 2018 and June 30, 2017, respectively.

Pro Forma Adjusted EBITDA, EBITDA Margin, Net Income, and Diluted Earnings Per Share (Unaudited)

Pro forma adjusted EBITDA and pro forma adjusted EBITDA margin exclude the following items: mark-to-market adjustments to the pension and other post-employment benefit (OPEB) programs, stock-based compensation, and the 2018 start-up costs associated with the National Background Investigations Bureau (NBIB) program. There were no mark-to-market changes in either the current or year-ago quarterly periods. Pro forma adjusted net income and pro forma adjusted diluted earnings per share also exclude acquisition-related intangible amortization.

Previously, in its Current Report on Form 8-K filed on July 19, 2018, the Company provided separate reconciliations of (1) pro forma adjusted EBITDA and pro forma adjusted EBITDA margin and (2) pro forma adjusted net income and pro forma adjusted diluted earnings per share to net income. Perspecta has updated this presentation to combine the separate reconciliations and to apply a pro forma effective tax rate of 34 percent in the reconciliations for pro forma adjusted net income and pro forma adjusted diluted earnings per share for fiscal year 2018.

This change adjusts for the effects of implementing the Tax Cuts and Jobs Act of 2017 for purposes of comparison to the financial results for fiscal year 2019. For the three months ended June 30, 2017, the presentation change resulted in an increase of $4 million in pro forma adjusted net income and $0.02 in pro forma adjusted diluted EPS.


                                                                                    PERSPECTA INC.

                                                             UNAUDITED PRO FORMA COMBINED ADJUSTED EBITDA AND DILUTED EPS

                                                                       FOR THE THREE MONTHS ENDED JUNE 30, 2018


    (In millions)                         Perspecta for             Effect of                 Historical             Effect of                Pro Forma
                                            the Three               Spin-Off                 Vencore Two             Mergers                  Combined
                                          Months Ended                                       Months Ended
                                          June 30, 2018                                      May 31, 2018
    ------------                         --------------            ----------               -------------           ----------               ----------

    Net income (loss)                                        $29                                              $(7)                                       $(57)        $12      $(23)

    Income tax expense (benefit)                     12                                (2)                                    1                               5    16

    Interest expense                                 10                                  9                                    39                            (25)   33

    Depreciation and amortization                    64                                  -                                    5                              13    82
                                                    ---                                ---                                  ---                             ---   ---

    EBITDA                                          115                                  -                                 (12)                              5   108

    Separation and integration costs                 44                                  -                                   41                               -   85

    Stock-based compensation                          2                                  -                                    -                              -    2

    Adjusted EBITDA                                         $161                                         $       -                                         $29          $5 195
                                                            ====                                       ===     ===                                         ===         ===

    Depreciation and amortization                                                                                                                  (82)

    Amortization of acquired intangibles                                                                                                             40

    Interest expense (a)                                                                                                                           (30)
                                                                                                                                                    ---

    Earnings before taxes                                                                                                                           123

    Income tax expense (benefit) (b)                                                                                                                 33

    Adjusted net income                                                                                                                                   $90
                                                                                                                                                          ===

    Adjusted diluted EPS (c)                                                                                                                            $0.54


    Notes:

    (a)                                   Pro forma interest expense is the sum of the GAAP interest expense for the month of June 2018 plus
                                          a derived interest expense for the months of April and May 2018, based on the average of the
                                          applicable one-month LIBOR rates for the three-month period ended June 30, 2018, which better
                                          represents Perspecta's interest rate experience.

    (b)                                   Represents the income tax impact of the adjustments to net income using an estimated effective tax
                                          rate of approximately 27%.

    (c)                                   Represents adjusted net income divided by the weighted-average common shares on a diluted basis of
                                          165.93 million.


                                                                               PERSPECTA INC.

                                        UNAUDITED PRO FORMA COMBINED ADJUSTED EBITDA AND DILUTED EPS EXCLUDING CONTRACT DIVESTITURE

                                                                  FOR THE THREE MONTHS ENDED JUNE 30, 2018


    (In millions)                                                                                                                    Pro Forma
                                                                                                                                     Combined
    -------------                                                                                                                   ----------

    Adjusted EBITDA                                                                                                                                $195

    Gain on contract divestiture                                                                                                          (24)
                                                                                                                                           ---

    Adjusted EBITDA excluding contract divestiture                                                                                         171

    Depreciation and amortization                                                                                                         (82)

    Amortization of acquired intangibles                                                                                                    40

    Interest expense (a)                                                                                                                  (30)
                                                                                                                                           ---

    Earnings before taxes excluding contract divestiture                                                                                    99

    Income tax expense (benefit) excluding contract divestiture (b)                                                                         27

    Adjusted net income excluding contract divestiture                                                                                              $72
                                                                                                                                                    ===

    Adjusted diluted EPS excluding contract divestiture (c)                                                                                       $0.44


    (a)                                                                                                                              Pro forma interest expense is the sum of
                                                                                                                                     the GAAP interest expense for the month
                                                                                                                                     of June 2018 plus a derived interest
                                                                                                                                     expense for the months of April and May
                                                                                                                                     2018, based on the average of the
                                                                                                                                     applicable one-month LIBOR rates for
                                                                                                                                     the three-month period ended June 30,
                                                                                                                                     2018, which better represents
                                                                                                                                     Perspecta's interest rate experience.

    (b)                                                                                                                              Represents the income tax impact of the
                                                                                                                                     adjustments to net income using an
                                                                                                                                     estimated effective tax rate of
                                                                                                                                     approximately 27%.

    (c)                                                                                                                              Represents adjusted net income divided
                                                                                                                                     by the weighted-average common shares
                                                                                                                                     on a diluted basis of 165.93 million.


                                                                                  PERSPECTA INC.

                                                           UNAUDITED PRO FORMA COMBINED ADJUSTED EBITDA AND DILUTED EPS


                                                                     FOR THE THREE MONTHS ENDED JUNE 30, 2017


                                                      Historical      Effect of      Historical      Effect of     Pro Forma
                                                      USPS for the             Spin-Off                    Vencore              Mergers                  Combined
                                                      Three Months                                      Three Months
                                                       Ended June                                        Ended June
    (In millions)                                       30, 2017                                          30, 2017
    ------------                                     -------------            ----------               -------------           ----------               ----------

    Net income (loss)                                                   $32                                              $(9)                                        $(3)          $(20)   $  -

    Income tax expense (benefit)                                20                                (4)                                    4                             (6)     14

    Interest expense                                             2                                 14                                    21                             (2)     35

    Depreciation and amortization                               37                                  -                                    8                              16      61
                                                               ---                                ---                                  ---                             ---     ---

    EBITDA                                                      91                                  1                                    30                            (12)    110

    Restructuring                                                3                                  -                                    -                              2       5

    Debt extinguishment costs                                    -                                 -                                    4                               -      4

    Separation and integration costs                            11                                (1)                                    -                              1      11

    Pension and OPEB actuarial and settlement losses             -                                 -                                  (2)                              2       -

    Stock-based compensation                                     1                                  -                                  (2)                              2       1

    NBIB adjustment                                              -                                 -                                   11                               -     11
                                                                                                                                                                            ---

    Adjusted EBITDA                                                    $106                                         $       -                                         $41            $(5) 142
                                                                       ====                                       ===     ===                                         ===             ===

    Depreciation and amortization                                                                                                                             (61)

    Amortization of acquired intangibles                                                                                                                        40

    Interest expense (a)                                                                                                                                      (32)
                                                                                                                                                               ---

    Earnings before taxes                                                                                                                                       89

    Income tax expense (benefit) (b)                                                                                                                            33

    Adjusted net income                                                                                                                                              $59
                                                                                                                                                                     ===

    Adjusted diluted EPS (c)                                                                                                                                       $0.36


    Notes:

    (a)                                               Pro Forma interest expense is derived based on the average of the applicable one-month LIBOR rates for
                                                      the three month period ended June 30, 2018 to enhance comparability to the period during which the debt
                                                      was established.

    (b)                                               Represents the income tax impact of the adjustments to net income using an estimated effective tax rate
                                                      of approximately 34%.

    (c)                                               Represents adjusted net income divided by the weighted-average common shares on a diluted basis of
                                                      165.70 million.

Free Cash Flow (Unaudited)

Perspecta defines free cash flow as the sum of net cash provided by operating activities and net cash used in investing activities adjusted for certain items, such as (i) payments on lease liabilities, (ii) business acquisitions, dispositions, and investments, (iii) payments and amortization related to restructuring activities, (iv) payments on restructuring, transaction and integration-related costs, (v) the impact arising from the initial sale of accounts receivables under the Master Accounts Receivable Purchase Agreement, and (vi) other non-recurring payments.


                                                                                         PERSPECTA INC.

                                                                         PRO FORMA ADJUSTED FREE CASH FLOW (Unaudited)

                                                                            FOR THE THREE MONTHS ENDED JUNE 30, 2018


    (In millions)                                                              Perspecta for the three                Historical Vencore for                Pro Forma Combined
                                                                                                                       the two months ended                for the three months
                                                                                months ended June 30,                       May 31, 2018                   ended June 30, 2018
                                                                                                  2018
    ---                                                                                           ----

    Net cash provided by operating activities                                                                  $160                                                             $16           $176

    Net cash used in investing activities                                                      (1,290)                                               (3)                            (1,293)

    Acquisitions net of cash acquired, and other (a)                                             1,284                                                  -                              1,284

    Payments on lease liability (b)                                                               (41)                                                 -                               (41)
                                                                                                   ---                                                ---                                ---

    Free cash flow                                                                                 113                                                 13                                 126

    Payments on restructuring, transaction and integration-related costs                            18                                                  1                                  19

    Adjusted free cash flow                                                                                    $131                                                             $14           $145
                                                                                                               ====                                                             ===           ====


    Notes:

    (a)                                                                         Includes outflow of: $312 million of acquisition net of cash acquired, $994 million of costs
                                                                                related to the extinguishment of Vencore debt and related costs and $2 million of outsourcing
                                                                                contract costs. Additionally, includes inflow of cash proceeds from sale of assets of $24
                                                                                million.

    (b)                                                                        Represents payments on capital leases.


                                                                                        PERSPECTA INC.

                                                                         PRO FORMA ADJUSTED FREE CASH FLOW (Unaudited)

                                                                           FOR THE THREE MONTHS ENDED JUNE 30, 2017


    (In millions)                                                                                      Historical USPS for
                                                                                                               the                        Historical Vencore for       Pro Forma Combined
                                                                                                       three months ended                    the three months         for the three months
                                                                                                          June 30, 2017                     ended June 30, 2017       ended June 30, 2017
    ---                                                                                                   -------------                     -------------------       -------------------

    Net cash provided by operating activities                                                                                      $124                                                    $24        $148

    Net cash used in investing activities                                                                              (3)                                       (2)                            (5)

    Acquisitions net of cash acquired, and other (a)                                                                     3                                          -                              3

    Payments on lease liability                                                                                       (39)                                         -                           (39)

    Free cash flow                                                                                                      85                                         22                             107

    Payments on restructuring, transaction and integration-related costs                                                 3                                          2                               5

    Adjusted free cash flow                                                                                                         $88                                                    $24        $112
                                                                                                                                    ===                                                    ===        ====


    Notes:

    (a)                                                                                               Consists of $3 million of outsourcing contract costs.

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